TESLA, INC. The following discussion and analysis should be read in conjunction with the consolidated financial statements and the related notes included elsewhere in this Annual Report on Form 10-K. For further discussion of our products and services, technology and competitive strengths, refer to Item 1- Business. For discussion related to changes in financial condition and the results of operations for fiscal year 2021-related items, refer to Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for fiscal year 2021, which was filed with theSecurities and Exchange Commission onFebruary 7, 2022 .
Overview and 2022 Highlights
Our mission is to accelerate the world's transition to sustainable energy. We design, develop, manufacture, lease and sell high-performance fully electric vehicles, solar energy generation systems and energy storage products. We also offer maintenance, installation, operation, financial and other services related to our products. Additionally, we are increasingly focused on products and services based on artificial intelligence, robotics and automation. In 2022, we produced 1,369,611 consumer vehicles and delivered 1,313,851 consumer vehicles, despite ongoing supply chain and logistics challenges and factory shutdowns. We are currently focused on increasing vehicle production, capacity and delivery capabilities, improving and developing battery technologies, improving our FSD capabilities, increasing the affordability and efficiency of our vehicles, bringing new products to market and expanding our global infrastructure. In 2022, we deployed 6.5 GWh of energy storage products and 348 megawatts of solar energy systems. We are currently focused on ramping production of energy storage products, improving our Solar Roof installation capability and efficiency, and increasing market share of retrofit and new build solar energy systems. In 2022, we recognized total revenues of$81.46 billion , respectively, representing an increase of$27.64 billion , compared to the prior year. We continue to ramp production, build new manufacturing capacity and expand our operations to enable increased deliveries and deployments of our products and further revenue growth. In 2022, our net income attributable to common stockholders was$12.56 billion , representing a favorable change of$7.04 billion , compared to the prior year. We continue to focus on improving our profitability through production and operational efficiencies. We ended 2022 with$22.19 billion in cash and cash equivalents and investments, representing an increase of$4.48 billion from the end of 2021. Our cash flows provided by operating activities during 2022 and 2021 were$14.72 billion and$11.50 billion , respectively, representing an increase of$3.23 billion . Capital expenditures amounted to$7.16 billion during 2022, compared to$6.48 billion during 2021. Sustained growth has allowed our business to generally fund itself, and we will continue investing in a number of capital-intensive projects in upcoming periods.
Management Opportunities, Challenges and Uncertainties and 2023 Outlook
Automotive-Production
The following is a summary of the status of production of each of our announced vehicle models in production and under development, as of the date of this Annual Report on Form 10-K:
Production Location Vehicle Model(s) Production Status
Fremont Factory Model S / Model X Active
Model 3 / Model Y Active
Gigafactory Shanghai Model 3 / Model Y Active
Gigafactory Berlin-Brandenburg Model Y Active
Gigafactory Texas Model Y Active
Cybertruck Tooling
Gigafactory Nevada Tesla Semi Pilot production
TBD Tesla Roadster In development
TBD Robotaxi & Others In development
32-------------------------------------------------------------------------------- We are focused on growing our manufacturing capacity, which includes ramping all of our production vehicles to their installed production capacities as well as increasing production rate, efficiency and capacity at our current factories. The next phase of production growth will depend on the ramp at GigafactoryBerlin -Brandenburg and Gigafactory Texas, as well as our ability to add to our available sources of battery cell supply by manufacturing our own cells that we are developing to have high-volume output, lower capital and production costs and longer range. Our goals are to improve vehicle performance, decrease production costs and increase affordability. However, these plans are subject to uncertainties inherent in establishing and ramping manufacturing operations, which may be exacerbated by the new product and manufacturing technologies we are introducing, the number of concurrent international projects, any industry-wide component constraints, labor shortages and any future impact from events outside of our control such as the COVID-19 pandemic. Moreover, we have set ambitious technological targets with our plans for battery cells as well as for iterative manufacturing and design improvements for our vehicles with each new factory.
Automotive-Demand and Sales
Our cost reduction efforts, cost innovation strategies, and additional localized procurement and manufacturing are key to our vehicles' affordability, and for example, have allowed us to competitively price our vehicles inChina . We will also continue to generate demand and brand awareness by improving our vehicles' performance and functionality, including through products based on artificial intelligence such as Autopilot and FSD, and other software features, and delivering new vehicles, such as theTesla Semi inDecember 2022 . Moreover, we expect to continue to benefit from ongoing electrification of the automotive sector and increasing environmental awareness. However, we operate in a cyclical industry that is sensitive to political and regulatory uncertainty, including with respect to trade and the environment, all of which can be compounded by inflationary pressures, rising energy prices, increases in interest rates and any future global impact from the COVID-19 pandemic. For example, in the earlier part of 2022, the automotive industry in general experienced part shortages and supplier disruptions which impacted production leading to a general increase in vehicle pricing. As the year progressed, inflationary pressures increased across the markets in which we operate. In an effort to curb this trend, central banks in developed countries raised interest rates rapidly and substantially, impacting the affordability of vehicle lease and finance arrangements. Further, sales of vehicles in the automotive industry also tend to be cyclical in many markets, which may expose us to increased volatility as we expand and adjust our operations. Moreover, as additional competitors enter the marketplace and help bring the world closer to sustainable transportation, we will have to adjust and continue to execute well to maintain our momentum. These macroeconomic and industry trends have had, and will likely continue to have, an impact on the pricing of, and order rate for our vehicles, and we will continue to adjust accordingly to such developments.
Automotive-Deliveries and Customer Infrastructure
As our production increases, we must work constantly to similarly increase vehicle delivery capability so that it does not become a bottleneck on our total deliveries. Beginning the second half of 2022, due to continuing challenges caused by vehicle transportation capacity during peak delivery periods, we began transitioning to a more even regional mix of vehicle builds each week, which led to an increase in cars in transit at the end of the year. Increasing the exports of vehicles manufactured at Gigafactory Shanghai has also been effective in mitigating the strain on our deliveries in markets outside ofthe United States , and we expect to benefit further from situating additional factories closer to local markets, including the production launch at Gigafactory Berlin-Brandenburg and Gigafactory Austin. As we expand our manufacturing operations globally, we will also have to continue to increase and staff our delivery, servicing and charging infrastructure accordingly, maintain our vehicle reliability and optimize our Supercharger locations to ensure cost effectiveness and customer satisfaction. In particular, we remain focused on increasing the capability and efficiency of our servicing operations.
Energy Generation and Storage Demand, Production and Deployment
The long-term success of this business is dependent upon increasing margins
through greater volumes. We continue to increase the production of our energy
storage products to meet high levels of demand. For Megapack, energy storage
deployments can vary meaningfully quarter to quarter depending on the timing of
specific project milestones. For Powerwall, better availability and growing grid
stability concerns drive higher customer interest. We remain committed to
growing our retrofit solar energy business by offering a low-cost and simplified
online ordering experience. In addition, we continue to seek to improve our
installation capabilities and price efficiencies for Solar Roof. As these
product lines grow, we will have to maintain adequate battery cell supply for
our energy storage products and hire additional personnel, particularly skilled
electricians, to support the ramp of Solar Roof.
33
--------------------------------------------------------------------------------Cash Flow and Capital Expenditure Trends
Our capital expenditures are typically difficult to project beyond the short-term given the number and breadth of our core projects at any given time, and may further be impacted by uncertainties in future global market conditions. We are simultaneously ramping new products, ramping manufacturing facilities on three continents and piloting the development and manufacture of new battery cell technologies, and the pace of our capital spend may vary depending on overall priority among projects, the pace at which we meet milestones, production adjustments to and among our various products, increased capital efficiencies and the addition of new projects. Owing and subject to the foregoing as well as the pipeline of announced projects under development, all other continuing infrastructure growth and varying levels of inflation, we currently expect our capital expenditures to be between$6.00 to$8.00 billion in 2023 and between$7.00 to$9.00 billion in each of the following two fiscal years. Our business has recently been consistently generating cash flow from operations in excess of our level of capital spend, and with better working capital management resulting in shorter days sales outstanding than days payable outstanding, our sales growth is also facilitating positive cash generation. We have and will continue to utilize such cash flows, among other things, to do more vertical integration, expand our product roadmap and provide financing options to our customers. On the other hand, we are likely to see heightened levels of capital expenditures during certain periods depending on the specific pace of our capital-intensive projects and rising material prices and increasing supply chain and labor expenses resulting from changes in global trade conditions and labor availability associated with the COVID-19 pandemic. Overall, we expect our ability to be self-funding to continue as long as macroeconomic factors support current trends in our sales.
Operating Expense Trends
As long as we see expanding sales, and excluding the potential impact of macroeconomic conditions including increased labor costs and impairment charges on certain assets as explained below, we generally expect operating expenses relative to revenues to decrease as we continue to increase operational efficiency and process automation. We expect operating expenses to continue to grow in 2023 as we are expanding our operations globally. In the first quarter of 2021, we invested an aggregate$1.50 billion in bitcoin. As with any investment and consistent with how we manage fiat-based cash and cash-equivalent accounts, we may increase or decrease our holdings of digital assets at any time based on the needs of the business and our view of market and environmental conditions. Digital assets are considered indefinite-lived intangible assets under applicable accounting rules. Accordingly, any decrease in their fair values below our carrying values for such assets at any time subsequent to their acquisition will require us to recognize impairment charges, whereas we may make no upward revisions for any market price increases until a sale. For any digital assets held now or in the future, these charges may negatively impact our profitability in the periods in which such impairments occur even if the overall market values of these assets increase. For example, in the year endedDecember 31, 2022 , we recorded$204 million of impairment losses resulting from changes to the carrying value of our bitcoin and gains of$64 million on certain conversions of bitcoin into fiat currency by us.
Critical Accounting Policies and Estimates
The consolidated financial statements are prepared in accordance with accounting principles generally accepted in theU.S. ("GAAP"). The preparation of the consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses and related disclosures. We base our estimates on historical experience, as appropriate, and on various other assumptions that we believe to be reasonable under the circumstances. Changes in the accounting estimates are reasonably likely to occur from period to period. Accordingly, actual results could differ significantly from the estimates made by our management. We evaluate our estimates and assumptions on an ongoing basis. To the extent that there are material differences between these estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows may be affected. The estimates used for, but not limited to, determining significant economic incentive for resale value guarantee arrangements, sales return reserves, the collectability of accounts and financing receivables, inventory valuation, warranties, fair value of long-lived assets, goodwill, fair value of financial instruments, fair value and residual value of operating lease vehicles and solar energy systems subject to leases could be impacted. We have assessed the impact and are not aware of any specific events or circumstances that required an update to our estimates and assumptions or materially affected the carrying value of our assets or liabilities as of the date of issuance of this Annual Report on Form 10-K. These estimates may change as new events occur and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions. 34 --------------------------------------------------------------------------------
Revenue Recognition
Automotive Sales
Automotive sales revenue includes revenues related to cash and financing
deliveries of new vehicles, and specific other features and services that meet
the definition of a performance obligation under Accounting Standards
Codification ("ASC") 606, Revenue from Contracts with Customers ("ASC 606"),
including access to our FSD features, internet connectivity, Supercharger
network and over-the-air software updates. We recognize revenue on automotive
sales upon delivery to the customer, which is when the control of a vehicle
transfers. Payments are typically received at the point control transfers or in
accordance with payment terms customary to the business, except sales we finance
for which payments are collected over the contractual loan term. We also
recognize a sales return reserve based on historical experience plus
consideration for expected future market values, when we offer resale value
guarantees or similar buyback terms. Other features and services such as access
to our internet connectivity, legacy programs offering unlimited free
Supercharging and over-the-air software updates are provisioned upon control
transfer of a vehicle and recognized over time on a straight-line basis as we
have a stand-ready obligation to deliver such services to the customer. Other
limited free Supercharging incentives are recognized based on actual usage or
expiration, whichever is earlier. We recognize revenue related to these other
features and services over the performance period, which is generally the
expected ownership life of the vehicle. Revenue related to FSD is recognized
when functionality is delivered to the customer and the portion related to
software updates is recognized over time. For our obligations related to
automotive sales, we estimate standalone selling price by considering costs used
to develop and deliver the service, third-party pricing of similar options and
other information that may be available.
Any fees that are paid or payable by us to a customer's lender when we arrange
the financing are recognized as an offset against automotive sales revenue.
Costs to obtain a contract mainly relate to commissions paid to our sales
personnel for the sale of vehicles. As our contract costs related to automotive
sales are typically fulfilled within one year, the costs to obtain a contract
are expensed as incurred. Amounts billed to customers related to shipping and
handling are classified as automotive sales revenue, and we have elected to
recognize the cost for freight and shipping when control over vehicles, parts or
accessories have transferred to the customer as an expense in cost of automotive
sales revenue. Our policy is to exclude taxes collected from a customer from the
transaction price of automotive contracts.
We offer resale value guarantees or similar buy-back terms to certain
international customers who purchase vehicles and who finance their vehicles
through one of our specified commercial banking partners. Under these programs,
we receive full payment for the vehicle sales price at the time of delivery and
our counterparty has the option of selling their vehicle back to us during the
guarantee period, which currently is generally at the end of the term of the
applicable loan or financing program, for a pre-determined resale value. We
account for such automotive sales as a sale with a right of return when we do
not believe the customer has a significant economic incentive to exercise the
resale value guarantee provided to them at contract inception. The process to
determine whether there is a significant economic incentive includes a
comparison of a vehicle's estimated market value at the time the option is
exercisable with the guaranteed resale value to determine the customer's
economic incentive to exercise. On a quarterly basis, we assess the estimated
market values of vehicles sold with resale value guarantees to determine whether
there have been changes to the likelihood of future product returns. As we
accumulate more data related to the resale values of our vehicles or as market
conditions change, there may be material changes to their estimated values.
Inventory Valuation
Inventories are stated at the lower of cost or net realizable value. Cost is computed using standard cost for vehicles and energy products, which approximates actual cost on a first-in, first-out basis. We record inventory write-downs for excess or obsolete inventories based upon assumptions about current and future demand forecasts. If our inventory on-hand is in excess of our future demand forecast, the excess amounts are written-off. We also review our inventory to determine whether its carrying value exceeds the net amount realizable upon the ultimate sale of the inventory. This requires us to determine the estimated selling price of our vehicles less the estimated cost to convert the inventory on-hand into a finished product. Once inventory is written-down, a new, lower cost basis for that inventory is established and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis.
Should our estimates of future selling prices or production costs change, additional and potentially material write-downs may be required. A small change in our estimates may result in a material charge to our reported financial results.
35
--------------------------------------------------------------------------------Warranties
We provide a manufacturer's warranty on all new and used vehicles and a warranty on the installation and components of the energy generation and storage systems we sell for periods typically between 10 to 25 years. We accrue a warranty reserve for the products sold by us, which includes our best estimate of the projected costs to repair or replace items under warranties and recalls if identified. These estimates are based on actual claims incurred to date and an estimate of the nature, frequency and costs of future claims. These estimates are inherently uncertain given our relatively short history of sales, and changes to our historical or projected warranty experience may cause material changes to the warranty reserve in the future. The warranty reserve does not include projected warranty costs associated with our vehicles subject to operating lease accounting and our solar energy systems under lease contracts or PPAs, as the costs to repair these warranty claims are expensed as incurred. The portion of the warranty reserve expected to be incurred within the next 12 months is included within Accrued liabilities and other, while the remaining balance is included within Other long-term liabilities on the consolidated balance sheets. Warranty expense is recorded as a component of Cost of revenues in the consolidated statements of operations. Due to the magnitude of our automotive business, accrued warranty balance is primarily related to our automotive segment.
Stock-Based Compensation
We use the fair value method of accounting for our stock options and restricted
stock units ("RSUs") granted to employees and for our employee stock purchase
plan (the "ESPP") to measure the cost of employee services received in exchange
for the stock-based awards. The fair value of stock option awards with only
service and/or performance conditions is estimated on the grant or offering date
using the Black-Scholes option-pricing model. The Black-Scholes option-pricing
model requires inputs such as the risk-free interest rate, expected term and
expected volatility. These inputs are subjective and generally require
significant judgment. The fair value of RSUs is measured on the grant date based
on the closing fair market value of our common stock. The resulting cost is
recognized over the period during which an employee is required to provide
service in exchange for the awards, usually the vesting period, which is
generally four years for stock options and RSUs and six months for the ESPP.
Stock-based compensation expense is recognized on a straight-line basis, net of
actual forfeitures in the period.
For performance-based awards, stock-based compensation expense is recognized
over the expected performance achievement period of individual performance
milestones when the achievement of each individual performance milestone becomes
probable.
As we accumulate additional employee stock-based awards data over time and as we
incorporate market data related to our common stock, we may calculate
significantly different volatilities and expected lives, which could materially
impact the valuation of our stock-based awards and the stock-based compensation
expense that we will recognize in future periods. Stock-based compensation
expense is recorded in Cost of revenues, Research and development expense and
Selling, general and administrative expense in the consolidated statements of
operations.
Income Taxes
We are subject to taxes in the U.S. and in many foreign jurisdictions.
Significant judgment is required in determining our provision for income taxes,
our deferred tax assets and liabilities and any valuation allowance recorded
against our net deferred tax assets. We make these estimates and judgments about
our future taxable income that are based on assumptions that are consistent with
our future plans. Tax laws, regulations and administrative practices may be
subject to change due to economic or political conditions including fundamental
changes to the tax laws applicable to corporate multinationals. The U.S. , many
countries in the European Union and a number of other countries are actively
considering changes in this regard. As of December 31, 2022 , we had recorded a
full valuation allowance on our net U.S. deferred tax assets because we expect
that it is more likely than not that our U.S. deferred tax assets will not be
realized. Should the actual amounts differ from our estimates, the amount of our
valuation allowance could be materially impacted.
Furthermore, significant judgment is required in evaluating our tax positions.
In the ordinary course of business, there are many transactions and calculations
for which the ultimate tax settlement is uncertain. As a result, we recognize
the effect of this uncertainty on our tax attributes or taxes payable based on
our estimates of the eventual outcome. These effects are recognized when,
despite our belief that our tax return positions are supportable, we believe
that it is more likely than not that some of those positions may not be fully
sustained upon review by tax authorities. We are required to file income tax
returns in the U.S. and various foreign jurisdictions, which requires us to
interpret the applicable tax laws and regulations in effect in such
jurisdictions. Such returns are subject to audit by the various federal, state
and foreign taxing authorities, who may disagree with respect to our tax
positions. We believe that our consideration is adequate for all open audit
years based on our assessment of many factors, including past experience and
interpretations of tax law. We review and update our estimates in light of
changing facts and circumstances, such as the closing of a tax audit, the lapse
of a statute of limitations or a change in estimate. To the extent that the
final tax outcome of these matters differs from our expectations, such
differences may impact income tax expense in the period in which such
determination is made. The eventual impact on our income tax expense depends in
part if we still have a valuation allowance recorded against our deferred tax
assets in the period that such determination is made.
36
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Results of Operations
Revenues
Year Ended December 31, 2022 vs. 2021 Change 2021 vs. 2020 Change
(Dollars in millions) 2022 2021 2020 $ % $ %
Automotive sales $ 67,210 $ 44,125 $ 24,604 $ 23,085 52 % $ 19,521 79 %
Automotive regulatory credits 1,776 1,465 1,580 311 21 % (115 ) (7 )%
Automotive leasing 2,476 1,642 1,052 834 51 % 590 56 %
Total automotive revenues 71,462 47,232 27,236 24,230 51 % 19,996 73 %
Services and other 6,091 3,802 2,306 2,289 60 % 1,496 65 %
Total automotive & services
and other
segment revenue 77,553 51,034 29,542 26,519 52 % 21,492 73 %
Energy generation and storage
segment revenue 3,909 2,789 1,994 1,120 40 % 795 40 %
Total revenues $ 81,462 $ 53,823 $ 31,536 $ 27,639 51 % $ 22,287 71 %
Automotive & Services and Other Segment
Automotive sales revenue includes revenues related to cash and financing deliveries of new Model S, Model X, Semi, Model 3, and Model Y vehicles, including access to our FSD features, internet connectivity, free Supercharging programs and over-the-air software updates. These deliveries are vehicles that are not subject to lease accounting. Automotive regulatory credits includes sales of regulatory credits to other automotive manufacturers. Our revenue from automotive regulatory credits is directly related to our new vehicle production, sales and pricing negotiated with our customers. We monetize them proactively as new vehicles are sold based on standing arrangements with buyers of such credits, typically as close as possible to the production and delivery of the vehicle or changes in regulation impacting the credits.
Automotive leasing revenue includes the amortization of revenue for vehicles under direct operating lease agreements. Additionally, automotive leasing revenue includes direct sales-type leasing programs where we recognize all revenue associated with the sales-type lease upon delivery to the customer.
Services and other revenue consists of non-warranty after-sales vehicle services and parts, paid Supercharging, sales of used vehicles, retail merchandise and vehicle insurance revenue. 2022 compared to 2021 Automotive sales revenue increased$23.09 billion , or 52%, in the year endedDecember 31, 2022 as compared to the year endedDecember 31, 2021 , primarily due to an increase of 347,024 Model 3 and Model Y deliveries, and an increase of 38,183 Model S and Model X deliveries year over year. This was achieved from production ramping of Model Y at Gigafactory Shanghai and theFremont Factory as well as the start of production at Gigafactory Berlin-Brandenburg and Gigafactory Texas in 2022, at a higher combined average selling price from a higher proportion of Model Y sales despite a negative impact fromthe United States dollar strengthening against other foreign currencies in 2022 compared to the prior period. There was also an increase in production of Model S and Model X and an increase in the combined average selling price of Model S and Model X with a higher proportion of Model X sales, compared to the prior period as deliveries of the new versions of Model S and Model X began ramping in the second and fourth quarters of 2021, respectively. Further, during the fourth quarter of 2022, we recognized$324 million in revenue related to the general FSD feature release inNorth America . Automotive regulatory credits revenue increased$311 million , or 21%, in the year endedDecember 31, 2022 as compared to the year endedDecember 31, 2021 , primarily due to changes in regulation which entitled us to additional consideration of$288 million in revenue in the first quarter of 2022 for credits sold previously, in the absence of which we had only an immaterial increase in automotive regulatory credits revenue. Automotive leasing revenue increased$834 million , or 51%, in the year endedDecember 31, 2022 as compared to the year endedDecember 31, 2021 . The change is primarily due to an increase in activities under our direct operating lease program as well as an increase in direct sales-type leasing revenue. Services and other revenue increased$2.29 billion , or 60%, in the year endedDecember 31, 2022 as compared to the year endedDecember 31, 2021 . The change is primarily due to increase in used vehicle revenue driven by increases in volume and average selling prices of usedTesla and non-Tesla vehicles, non-warranty maintenance services revenue as our fleet continues to grow, paid Supercharging revenue, insurance services revenue and retail merchandise revenue. 37 --------------------------------------------------------------------------------
Energy Generation and Storage Segment
Energy generation and storage revenue includes sales and leasing of solar energy generation and energy storage products, financing of solar energy generation products, services related to such products and sales of solar energy systems incentives. 2022 compared to 2021 Energy generation and storage revenue increased$1.12 billion , or 40%, in the year endedDecember 31, 2022 as compared to the year endedDecember 31, 2021 , primarily due to an increase in energy storage deployments of Megapack, Powerwall and higher average selling price of Megapack, as well as on solar cash and loan deployments driven by price increases in 2022.
Cost of Revenues and Gross Margin
Year Ended December 31, 2022 vs. 2021 Change 2021 vs. 2020 Change
(Dollars in millions) 2022 2021 2020 $ % $ %
Cost of revenues
Automotive sales $ 49,599 $ 32,415 $ 19,696 $ 17,184 53 % $ 12,719 65 %
Automotive leasing 1,509 978 563 531 54 % 415 74 %
Total automotive cost of
revenues 51,108 33,393 20,259 17,715 53 % 13,134 65 %
Services and other 5,880 3,906 2,671 1,974 51 % 1,235 46 %
Total automotive & services
and other
segment cost of revenues 56,988 37,299 22,930 19,689 53 % 14,369 63 %
Energy generation and storage
segment 3,621 2,918 1,976 703 24 % 942 48 %
Total cost of revenues $ 60,609 $ 40,217 $ 24,906 $ 20,392 51 % $ 15,311 61 %
Gross profit total automotive
Gross profit total automotive & services and other segment$ 20,565 $ 13,735 $ 6,612 Gross margin total automotive & services and other segment 26.5 % 26.9 % 22.4 % Gross profit energy generation and storage segment$ 288 $ (129 ) $ 18 Gross margin energy generation and storage segment 7.4 % (4.6 )% 0.9 % Total gross profit$ 20,853 $ 13,606 $ 6,630 Total gross margin 25.6 % 25.3 % 21.0 %
Automotive & Services and Other Segment
Cost of automotive sales revenue includes direct and indirect materials, labor
costs, manufacturing overhead, including depreciation costs of tooling and
machinery, shipping and logistic costs, vehicle connectivity costs, allocations
of electricity and infrastructure costs related to our free Supercharging
programs and reserves for estimated warranty expenses. Cost of automotive sales
revenues also includes adjustments to warranty expense and charges to write down
the carrying value of our inventory when it exceeds its estimated net realizable
value and to provide for obsolete and on-hand inventory in excess of forecasted
demand.
Cost of automotive leasing revenue includes the depreciation of operating lease
vehicles, cost of goods sold associated with direct sales-type leases and
warranty expense related to leased vehicles. Cost of automotive leasing revenue
also includes vehicle connectivity costs and allocations of electricity and
infrastructure costs related to our Supercharger network for vehicles under our
leasing programs.
Cost of services and other revenue includes costs associated with providing
non-warranty after-sales services and parts, costs of paid Supercharging, cost
of used vehicles including refurbishment costs, costs for retail merchandise,
and costs to provide vehicle insurance.
38
--------------------------------------------------------------------------------2022 compared to 2021
Cost of automotive sales revenue increased$17.18 billion , or 53%, in the year endedDecember 31, 2022 as compared to the year endedDecember 31, 2021 , in line with the growth in revenue year over year, as discussed above. The average combined cost per unit of Model 3 and Model Y increased year over year due to rising raw material, logistics and warranty costs. There were also idle capacity charges of$306 million primarily related to the temporary suspension of production at Gigafactory Shanghai as well as the ramping up of production in Gigafactory Texas and our proprietary battery cells manufacturing during the year endedDecember 31, 2022 . We had also incurred costs related to the ramp up of production in Gigafactory Berlin-Brandenburg during the year endedDecember 31, 2022 . These increases were partially offset by a decrease in combined average Model S and Model X costs per unit driven by lower average cost for the new versions from ramping up production. Further, these increases in costs of revenue were positively impacted bythe United States dollar strengthening against other foreign currencies in 2022 compared to the prior period. Cost of automotive leasing revenue increased$531 million , or 54%, in the year endedDecember 31, 2022 as compared to the year endedDecember 31, 2021 , primarily due to an increase in cumulative vehicles under our direct operating lease program and an increase in direct sales-type leasing cost of revenues from more activities in the current year. Cost of services and other revenue increased$1.97 billion , or 51%, in the year endedDecember 31, 2022 as compared to the year endedDecember 31, 2021 . The change is primarily due to an increase in used vehicle cost of revenue driven by increases in volume and costs of usedTesla and non-Tesla vehicle sales, an increase in non-warranty maintenance service revenue, and an increase in costs of paid Supercharging, insurance services and retail merchandise. Gross margin for total automotive decreased from 29.3% to 28.5% in the year endedDecember 31, 2022 as compared to the year endedDecember 31, 2021 . This was driven by the changes in automotive sales revenue and cost of automotive sales revenue, partially offset by an increase in regulatory credits revenue, as discussed earlier. Gross margin for total automotive & services and other segment decreased from 26.9% to 26.5% in the year endedDecember 31, 2022 as compared to the year endedDecember 31, 2021 , primarily due to the automotive gross margin decrease discussed above, partially offset by an improvement in our services and other gross margin. Additionally, services and other was a higher percentage of the segment gross margin during the year ended 2022 as compared to the prior year.
Energy Generation and Storage Segment
Cost of energy generation and storage revenue includes direct and indirect material and labor costs, warehouse rent, freight, warranty expense, other overhead costs and amortization of certain acquired intangible assets. Cost of energy generation and storage revenue also includes charges to write down the carrying value of our inventory when it exceeds its estimated net realizable value and to provide for obsolete and on-hand inventory in excess of forecasted demand. In agreements for solar energy system and PPAs where we are the lessor, the cost of revenue is primarily comprised of depreciation of the cost of leased solar energy systems, maintenance costs associated with those systems and amortization of any initial direct costs.
2022 compared to 2021
Cost of energy generation and storage revenue increased$703 million , or 24%, in the year endedDecember 31, 2022 as compared to the year endedDecember 31, 2021 , primarily due to increases in energy storage deployments of Megapack and Powerwall, as well as higher average cost of solar cash and loan deployments due to increased component costs. Gross margin for energy generation and storage increased from -4.6% to 7.4% in the year endedDecember 31, 2022 as compared to the year endedDecember 31, 2021 . This was driven by the growth in energy generation and storage revenue and cost of energy generation and storage revenue as discussed above. Additionally, there was a higher proportion of energy storage sales, which operated at a higher gross margin, within the segment. 39 --------------------------------------------------------------------------------
Research and Development Expense
Year Ended December 31, 2022 vs. 2021 Change 2021 vs. 2020 Change
(Dollars in millions) 2022 2021 2020 $ % $ %
Research and development $ 3,075 $ 2,593 $ 1,491 $ 482 19 % $ 1,102 74 %
As a percentage of revenues 4 % 5 % 5 %
Research and development ("R&D") expenses consist primarily of personnel costs
for our teams in engineering and research, manufacturing engineering and
manufacturing test organizations, prototyping expense, contract and professional
services and amortized equipment expense.
R&D expenses increased $482 million , or 19%, in the year ended December 31, 2022
as compared to the year ended December 31, 2021 . The increase was primarily due
to a $175 million increase in employee and labor related expenses, a $132
million increase in facilities, outside services, freight and depreciation
expense, a $101 million increase in R&D expensed materials and an $87 million
increase in stock-based compensation expense. These increases were to support
our expanding product roadmap and technologies including our proprietary battery
cells. Further, there were additional R&D expenses in the first quarter of 2022
as we were in the pre-production phase at Gigafactory Texas and started
production at Gigafactory Berlin-Brandenburg only closer to the end of the first
quarter of 2022.
R&D expenses as a percentage of revenue decreased from 5% to 4% in the year
ended
Selling, General and Administrative Expense
Year Ended December 31, 2022 vs. 2021 Change 2021 vs. 2020 Change
(Dollars in millions) 2022 2021 2020 $ % $ %
Selling, general and
administrative $ 3,946 $ 4,517 $ 3,145 $ (571 ) (13 )% $ 1,372 44 %
As a percentage of revenues 5 % 8 % 10 %
Selling, general and administrative ("SG&A") expenses generally consist of personnel and facilities costs related to our stores, marketing, sales, executive, finance, human resources, information technology and legal organizations, as well as fees for professional and contract services and litigation settlements.
SG&A expenses decreased$571 million , or 13%, in the year endedDecember 31, 2022 as compared to the year endedDecember 31, 2021 . This is primarily due to a decrease of$822 million in stock-based compensation expense, most of which is attributable to the lower stock-based compensation expense of$844 million on the 2018 CEO Performance Award. This was partially offset by the overall growth in stock-based compensation due to increased headcount. See Note 13, Equity Incentive Plans, to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K. There was also a decrease of$87 million in overall employee and labor related expenses driven by a decrease of$340 million of additional payroll tax due to our CEO's option exercises from the 2012 CEO Performance Award in 2021, partially offset by an increase in other employee and labor costs from increased headcount. These decreases were partially offset by an increase of$222 million in facilities-related expenses, and an increase of$117 million in professional services, sales and marketing activities and other costs. SG&A expenses as a percentage of revenue decreased from 8% to 5% in the year endedDecember 31, 2022 as compared to the year endedDecember 31, 2021 . Our SG&A expenses have decreased as a proportion of total revenues due to the decrease in expenses as discussed above, in addition to operational efficiencies.
Restructuring and Other Expense
Year Ended December 31, 2022 vs. 2021 Change 2021 vs. 2020 Change
(Dollars in millions) 2022 2021 2020 $ % $ %
Restructuring and other $ 176 $ (27 ) $ - $ 203 Not meaningful $ (27 ) Not meaningful
During the years ended December 31, 2022 and 2021, we recorded $204 million and
$101 million , respectively, of impairment losses on digital assets,
respectively. During the years ended December 31, 2022 and 2021, we also
realized gains of $64 million and $128 million , respectively, in connection with
converting our holdings of digital assets into fiat currency. See Note 3,
Digital Assets, Net, to the consolidated financial statements included elsewhere
in this Annual Report on Form 10-K for further details. Additionally, we
recorded other expenses of $36 million during the second quarter of the year
ended December 31, 2022 , related to employee terminations.
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Interest Income
Year Ended December 31, 2022 vs. 2021 Change 2021 vs. 2020 Change
(Dollars in millions) 2022 2021 2020 $ % $ %
Interest income $ 297 $ 56 $ 30 $ 241 430 % $ 26 87 %
Interest income increased $241 million , or 430%, in the year ended December 31,
2022 as compared to the year ended December 31, 2021 . This increase was
primarily due to higher interest earned on our cash and cash equivalents and
short-term investments during the year ended 2022 compared to the prior period.
This was driven by an increase in our average cash and cash equivalents and
short-term investments balance and rising interest rates.
Interest Expense
Year Ended December 31, 2022 vs. 2021 Change 2021 vs. 2020 Change
(Dollars in millions) 2022 2021 2020 $ % $ %
Interest expense $ (191 ) $ (371 ) $ (748 ) $ 180 (49 )% $ 377 (50 )%
Interest expense decreased $180 million , or 49%, in the year ended December 31,
2022 as compared to the year ended December 31, 2021 . This decrease was
primarily due to the continued reduction in our overall debt balance offset by
lower capitalized interest. See Note 11, Debt, to the consolidated financial
statements included elsewhere in this Annual Report on Form 10-K for further
details.
Other (Expense) Income, Net
Year Ended December 31, 2022 vs. 2021 Change 2021 vs. 2020 Change
(Dollars in millions) 2022 2021 2020 $ % $ %
Other (expense) income, net
Other (expense) income, net, consists primarily of foreign exchange gains and losses related to our foreign currency-denominated monetary assets and liabilities. We expect our foreign exchange gains and losses will vary depending upon movements in the underlying exchange rates. Other (expense) income, net, changed unfavorably by$178 million in the year endedDecember 31, 2022 as compared to the year endedDecember 31, 2021 . The change is primarily due to fluctuations in foreign currency exchange rates. Provision for Income Taxes Year Ended December 31, 2022 vs. 2021 Change 2021 vs. 2020 Change (Dollars in millions) 2022 2021 2020 $ % $ % Provision for income taxes$ 1,132 $ 699 $ 292 $ 433 62 %$ 407 139 % Effective tax rate 8 % 11 % 25 %
Our provision for income taxes increased by
Our effective tax rate decreased from 11% to 8% in the year endedDecember 31, 2022 as compared to the year endedDecember 31, 2021 , primarily due to changes in mix of jurisdictional earnings.
See Note 14, Income Taxes, to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further details.
Net Income Attributable to Noncontrolling Interests and Redeemable
Noncontrolling Interests
Year Ended December 31, 2022 vs. 2021 Change 2021 vs. 2020 Change
(Dollars in millions) 2022 2021 2020 $ % $ %
Net income attributable to
noncontrolling
interests and redeemable
noncontrolling interests
in subsidiaries $ 31 $ 125 $ 141 $ (94 ) (75 )% $ (16 ) (11 )%
41-------------------------------------------------------------------------------- Net income attributable to noncontrolling interests and redeemable noncontrolling interests decreased by$94 million , or 75%, in the year endedDecember 31, 2022 as compared to the year endedDecember 31, 2021 . These changes were due to a decrease in allocations to financing fund investors.
Liquidity and Capital Resources
We expect to continue to generate net positive operating cash flow as we have done in the last four fiscal years. The cash we generate from our core operations enables us to fund ongoing operations and production, our research and development projects for new products and technologies including our proprietary battery cells, additional manufacturing ramps at existing manufacturing facilities such as theFremont Factory , Gigafactory Nevada, Gigafactory Shanghai and Gigafactory New York, the ramp of GigafactoryBerlin -Brandenburg and Gigafactory Texas and the continued expansion of our retail and service locations, body shops, Mobile Service fleet, Supercharger network and energy product installation capabilities. In addition, because a large portion of our future expenditures will be to fund our growth, we expect that if needed we will be able to adjust our capital and operating expenditures by operating segment. For example, if our near-term manufacturing operations decrease in scale or ramp more slowly than expected, including due to global economic or business conditions, we may choose to correspondingly slow the pace of our capital expenditures. Finally, we continually evaluate our cash needs and may decide it is best to raise additional capital or seek alternative financing sources to fund the rapid growth of our business, including through drawdowns on existing or new debt facilities or financing funds. Conversely, we may also from time to time determine that it is in our best interests to voluntarily repay certain indebtedness early. Accordingly, we believe that our current sources of funds will provide us with adequate liquidity during the 12-month period followingDecember 31, 2022 , as well as in the long-term.
See the sections below for more details regarding the material requirements for cash in our business and our sources of liquidity to meet such needs.
Material Cash Requirements
From time to time in the ordinary course of business, we enter into agreements with vendors for the purchase of components and raw materials to be used in the manufacture of our products. However, due to contractual terms, variability in the precise growth curves of our development and production ramps, and opportunities to renegotiate pricing, we generally do not have binding and enforceable purchase orders under such contracts beyond the short-term, and the timing and magnitude of purchase orders beyond such period is difficult to accurately project. As discussed in and subject to the considerations referenced in Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations-Management Opportunities, Challenges and Risks and 2023 Outlook-Cash Flow and Capital Expenditure Trends in this Annual Report on Form 10-K, we currently expect our capital expenditures to support our projects globally to be between$6.00 to$8.00 billion in 2023 and between$7.00 to$9.00 billion in each of the following two fiscal years. In connection with our operations at Gigafactory New York, we have an agreement to spend or incur$5.00 billion in combined capital, operational expenses, costs of goods sold and other costs in theState of New York throughDecember 31, 2029 (pursuant to a deferral of our required timelines to meet such obligations that was granted inApril 2021 , and which was memorialized in an amendment to our agreement with theSUNY Foundation inAugust 2021 ). We also have an operating lease arrangement with the local government ofShanghai pursuant to which we are required to spendRMB 14.08 billion in capital expenditures at Gigafactory Shanghai by the end of 2023. For details regarding these obligations, refer to Note 15, Commitments and Contingencies, to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K. As ofDecember 31, 2022 , we and our subsidiaries had outstanding$2.06 billion in aggregate principal amount of indebtedness, of which$1.02 billion is scheduled to become due in the succeeding 12 months. As ofDecember 31, 2022 , our total minimum lease payments was$4.28 billion , of which$1.14 billion is due in the succeeding 12 months. For details regarding our indebtedness and lease obligations, refer to Note 11, Debt, and Note 12, Leases, to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
Sources and Conditions of Liquidity
Our sources to fund our material cash requirements are predominantly from our
deliveries and servicing of new and used vehicles, sales and installations of
our energy storage products and solar energy systems, proceeds from debt
facilities and proceeds from equity offerings, when applicable.
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As of December 31, 2022 , we had $16.25 billion and $5.93 billion of cash and
cash equivalents and short-term investments, respectively. Balances held in
foreign currencies had a U.S. dollar equivalent of $3.42 billion and consisted
primarily of Chinese yuan, euros and British pounds. In addition, we had $2.42
billion of unused committed amounts under our credit facilities as of December
31, 2022 , which included $2.27 billion under our Credit Agreement which was
terminated in January 2023 . Certain of such unused committed amounts are subject
to satisfying specified conditions prior to draw-down (such as pledging to our
lenders sufficient amounts of qualified receivables, inventories, leased
vehicles and our interests in those leases, solar energy systems and the
associated customer contracts or various other assets). In January 2023 , we
entered into an unsecured revolving credit facility providing for a commitment
of up to $5.0 billion . For details regarding our indebtedness, refer to Note 11,
Debt, to the consolidated financial statements included elsewhere in this Annual
Report on Form 10-K.
We continue adapting our strategy to meet our liquidity and risk objectives,
such as investing in U.S. government and other investments, to do more vertical
integration, expand our product roadmap and provide financing options to our
customers.
Summary of Cash Flows
Year Ended December 31,
(Dollars in millions) 2022 2021 2020
Net cash provided by operating activities $ 14,724 $ 11,497 $ 5,943
Net cash used in investing activities $ (11,973 ) $
(7,868 )
Cash Flows from Operating Activities
Our cash flows from operating activities are significantly affected by our cash investments to support the growth of our business in areas such as research and development and selling, general and administrative and working capital. Our operating cash inflows include cash from vehicle sales and related servicing, customer lease and financing payments, customer deposits, cash from sales of regulatory credits and energy generation and storage products. These cash inflows are offset by our payments to suppliers for production materials and parts used in our manufacturing process, operating expenses, operating lease payments and interest payments on our financings. Net cash provided by operating activities increased by$3.23 billion to$14.72 billion during the year endedDecember 31, 2022 from$11.50 billion during the year endedDecember 31, 2021 . This increase was primarily due to the increase in net income excluding non-cash expenses, gains and losses of$7.65 billion , offset by the overall increase in net operating assets and liabilities of$4.43 billion . The increase in our net operating assets and liabilities was mainly driven by a larger increase of inventory in the year endedDecember 31, 2022 as compared to the year endedDecember 31, 2021 , partially offset by a larger increase of accounts payable and accrued liabilities, to support the ramp up in production at our factories and larger increases in other non-current assets and prepaid expenses and other current assets. Additionally, the increase in our net operating assets and other liabilities was partially offset by a larger increase in other long-term liabilities as compared to the prior year.
Cash Flows from Investing Activities
Cash flows from investing activities and their variability across each period related primarily to capital expenditures, which were$7.16 billion for the year endedDecember 31, 2022 and$6.48 billion for the year endedDecember 31, 2021 , mainly for the expansions of Gigafactory Texas, theFremont Factory , GigafactoryBerlin -Brandenburg, and Gigafactory Shanghai. We also purchased$5.84 billion of investments in the year endedDecember 31, 2022 . Additionally, cash inflows related to sales of digital assets were$936 million in the year endedDecember 31, 2022 , and net cash outflows related to digital assets were$1.23 billion in the year endedDecember 31, 2021 from purchases of digital assets for$1.50 billion offset by proceeds from sales of digital assets of$272 million .
Cash Flows from Financing Activities
Net cash used in financing activities decreased by$1.68 billion to$3.53 billion during the year endedDecember 31, 2022 from$5.20 billion during the year endedDecember 31, 2021 . The decrease was primarily due to a$1.92 billion decrease in repayments of convertible and other debt, net of proceeds from issuances of debt. See Note 11, Debt, to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further details regarding our debt obligations.
Recent Accounting Pronouncements
See Note 2, Summary of Significant Accounting Policies, to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
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